What Is an Estoppel Certificate?

Your landlord is probably selling or refinancing the building. A buyer or lender wants to know the status of each lease, and it wants to hear that directly from the tenant, not only from the owner. An article from Hogan & Hartson, now Hogan Lovells, describes the estoppel certificate, also called an estoppel letter, as a certification of factual information about a lease as of the time the tenant signs.

Maslon, a Minneapolis law firm, calls it a factual snapshot in time and says most commercial leases expressly require tenants to sign one on request, although the detail of those clauses varies widely. Check your own lease first. It may state how quickly you must respond, how often the landlord can ask and what topics the certificate must cover.

The word estoppel is the point of the document. A party who signed a statement may be stopped, or estopped, from later saying something different. Attorney Manuel Fishman of Buchalter Nemer writes that a tenant can be barred from contradicting the certificate even if the lease is to the contrary. How far that goes depends on the facts and the governing law, so ask your attorney.

Why ask at all, when a buyer could read the lease? Because some facts do not appear there, such as the actual commencement and expiration dates, whether rent has been prepaid, or whether the landlord finished its delivery work. Common statements include:

• The documents that make up the lease, including every amendment and side letter.
• The lease term, start and expiration dates, and any renewal, expansion or purchase rights.
• Current monthly rent and the date through which rent has been paid.
• The amount of the security deposit.
• Whether the landlord has finished its required work and paid any improvement allowance.
• Whether either side is in default, and whether you claim any offsets or defenses.
• Whether you have sublet or transferred any part of your interest.

Maslon’s advice is that the primary goal is keeping the certificate a factual snapshot, so it does not become an amendment that adds to your obligations or cuts your rights. Often the first draft comes from the lender’s or buyer’s counsel, and Maslon notes that many requests go beyond what the lease requires.

• ✓Does our lease require a certificate, and what does it say about timing and content?
• ✓Does the description of the lease list every amendment, side letter and related agreement?
• ✓Are the dates, rent, deposit and square footage correct according to our records, not just the landlord’s?
• ✓Does it say the landlord has finished all work or paid all allowances? Is that true today?
• ✓Does it waive any right to audit or dispute operating expenses, taxes or other pass-through charges?
• ✓Does it say there are no defaults or claims? Should that be limited to our actual knowledge?
• ✓Does it say that nothing has happened that could become a default later? Can we delete that?
• ✓Does it add obligations, such as hazardous materials statements or environmental indemnities, beyond those in the lease?
• ✓Does it ask us to agree to subordinate, attorn or give the lender notices? Do those promises belong in a separate agreement?
• ✓Can we add that the certificate does not amend the lease and that the lease controls in a conflict?

FLB Law, a Connecticut firm, warns that signing an inaccurate estoppel in effect modifies the lease, and that omitting an unpaid improvement allowance could cost you that money. Maslon adds particular caution for a request that arrives early in the term or just after a renewal, when work and concessions may still be outstanding. Have someone who knows the day-to-day history of the lease review the facts, then have your attorney read the wording.

If a statement is wrong, change it. Hogan Lovells advises tenants to correct discrepancies, to consider limiting broad statements to actual knowledge, and to resist language that changes the lease. If the parties truly want to change the lease, a signed amendment is the right document.

Time is the pressure point. A landlord may be working toward a closing, and Blakes, a Canadian firm, notes that a certificate is often required to be dated within a short window before closing, often 30 days. Your lease sets its own response time, which is a separate question. Attorney Robert D. Mitchell gives a sample clause allowing 15 days after written notice. Yours may differ, so look it up on the day the request arrives.

Also look for what the lease says happens if you miss the date. Mitchell lists provisions found in some leases:

• Deemed admission. Failure to return the certificate on time is treated as agreeing that its contents are true.
• Attorney-in-fact. The landlord may complete and sign the certificate on your behalf.
• Penalty or damages. You owe a stated amount, such as a month’s rent, or are liable for damages.

These terms are negotiated when the lease is signed. If your draft includes them, ask your attorney whether they can be softened, for example with a longer period, a second notice before any consequence applies, or a limit on the landlord’s power to sign for you. How a court would treat such a clause depends on the state and the wording.

Respond on time even when you disagree. Maslon suggests returning a signed copy marked with your specific changes, which helps answer any claim that you failed to respond.

1. Record the date you received the request and calculate the deadline under your lease.
2. Pull the signed lease, every amendment and side letter, your commencement date agreement and your lease abstract.
3. Ask the person who administers the lease to confirm each fact, including payments, deposit, landlord work and any open disputes.
4. Send the draft and your notes to your attorney, especially if there is an open dispute or the certificate adds new language.
5. Mark up the draft so it states facts only, tied back to the lease where possible.
6. Return the signed certificate before the deadline and keep a copy in your lease file.

Pushback is possible. Maslon reports that a useful response to objections is asking where the lease requires the requested language, while also noting that the parties have an ongoing relationship and that conceding small points can be sensible. Timely return is often what the landlord cares about most.

A sale or refinancing can also be a useful moment to check your own position. If you have an unresolved operating expense question or an unpaid allowance, this request may surface it. At Tenant Advisory Group, we represent tenants and buyers, and when a client receives one of these requests during a broader lease review, we help check the business facts against the deal terms before counsel finalizes the wording.